Natural Gas Edges Lower for Fourth Day on Warmer Temperatures

Natural-gas futures were weaker for a fourth day Wednesday amid forecasts for an imminent end to demand-boosting frigid temperatures in the eastern U.S.

Prices have retreated by 9.9 cents in the previous three days from the 19-month highs above $4 per million British thermal units set a week earlier. But despite forecasts for a sharp swing to above-normal temperatures in the heavily populated Northeast starting this weekend, prices have held fairly buoyant on expectations of sliding inventories. Latest outlooks call for continued below-normal temperatures in the upper Midwest, which loans some price support.

Early indications from more than a dozen market participants project that gas storage levels dropped by 91 billion cubic feet last week, a decrease that would push inventory below its five-year average for the first time since September 2011, when prices last traded above $4/mmBtu.

The weekly storage report is due out at 10:30 a.m. EDT from the Energy Information Administration
Frigid temperatures across the eastern half of the nation since March erased the overhang in stocks compared with five-year norms and the strong demand for gas-fired heating has inventories declining sharply at a time when they normally rise.

Last winter-the fourth-warmest winter of the past century-saw gas storage levels rise 43 bcf in the final week of March, pushing inventories to record levels and setting the stage for a late-April drop to a decade-low price of $1.907/mmBtu.

The situation could hardly be more different this year, with prices holding close to $4/mmBtu on surging demand amid long-delayed spring temperatures. Driven by cold weather, sliding stockpiles and output levels that have slowed from a year earlier, speculative investors have amassed their biggest bet on higher prices since at least 2007. Open-interest in gas futures has set record highs in nine consecutive sessions, CME Group Inc. (CME), the parent of the New York Mercantile Exchange, said Tuesday.

Antsy traders wonder when these players will change their view and how much of the rise of 91 cents/mmBtu from the mid-February low prices will give back.

Nymex May-delivery natural-gas futures were 0.8 cent lower at $3.961/mmBtu, recovering from earlier low of $3.926/mmBtu, the weakest intraday level since March 26.

Tim Evans, analyst at Citi Futures, said demand-sapping warmer temperatures have potential to knock prices back to the $3-$3.25/mmBtu range soon. He expects coal to take some market share back from relatively pricier natural gas and rebounding nuclear power generation eating into gas demand as well.

“Since fund managers are under no obligation to wait until fundamentals weaken to begin reducing exposures, prices could begin falling sooner rather than later,” Mr. Evans said.

Jim Ritterbusch, president of Ritterbusch & Associates, said recent declines aren’t surprising in the “overbought” market. But he believes that if the data confirms a drop below five-year average levels in inventories, prices could again top $4/mmBtu, before slipping to around $3.75/mmBtu later in April.

Natural gas for next-day delivery at the benchmark Henry Hub in Louisiana recently traded at $4.045/mmBtu, according to IntercontinentalExchange Inc. (ICE), compared with Tuesday’s average of $4.0525/mmBtu. Natural gas for next-day delivery at Transcontinental Zone 6 in New York traded at $5.05/mmBtu, down from $6.90/mmBtu on Tuesday.

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